published to elicit comments and to further debate. Interest rates in China comprise a mix of both market determined interest rates (interbank rates and bond yields)‚ and regulated interest rates (lending and deposit rates)‚ reflecting China’s gradual process of interest rate liberalization. We argue‚ using a theoretical model and empirical analysis‚ that the regulation of key retail interest rates diminishes the ability of the market determined rates to act as independent price signals‚ or as benchmarks
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and monetary policy? IS-LM in an open economy Appr. Depr. Fiscal policy in an open economy LM ∆G>0 Interest rate‚ i NetE0 Interest rate‚ i M>0 LM’ i i’’ i’ IS Y Y’ Y’’ Output‚ Y A A’’ A’ IS’ E E’’ E’ Exchange rate‚ E Monetary policy under a final exchange rate IS Interest rate‚ i LM M>0 LM’ A i i’ A A’ Y Y’ E Exchange rate‚ E Output‚ Y Foreign resources and money supply Central bank balance sheet Assets Domestic bonds (B) Foreign
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ECONOMICS AND FINANCE EDUCATION • Volume 6 • Number 1 • Summer 2007 48 Reconsidering the Introduction to Interest Rate Theory S. Kirk Elwood1 ABSTRACT The various theories of interest rate determination presented in economics textbooks each spotlight a particular fundamental force behind the equilibrium rate. Unfortunately‚ each theory’s successful emphasis of one determinant of the interest rate comes at the cost of distorting some other aspect of its determination. This paper argues that the basic
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Chapter 5 Interest Rates Problem 3 Which do you prefer: a bank account that pays 5% per year (EAR) for three years or a. An account that pays 2 every six months for three years? b. An account that pays 7 every 18 months for three years? c. An account that pays per month for three years? If you deposit $1 into a bank account that pays 5% per year for 3 years you will have after 3 years. a. If the account pays per 6 months then you will have after 3 years‚ so you prefer every 6 months
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occurred at the start of the crisis where overnight interest rates rose sharply in Europe leading to the ECB responding with a liquidity injection of ’€94.8 billion worth of overnight repos ’ (Cecchetti‚ 2008). The Central Banks went on to drop interest rates. The aim of this was to allow banks to receive short-term funding at lower interest rates as well as reducing the demand for inter-bank loans (Cecchetti 2008). The hope was that lower interest rates would also
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monetary policy or an expansionary monetary policy.A yield curve is a line that plots the interest rates‚ at a set point in time‚ of bonds having equal credit quality‚ but differing maturity dates. The most frequently reported yield curve compares the three-month‚ two-year‚ five-year and 30-year Treasury debt. This yield curve is used as a benchmark for other debt in the market‚ such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth. The shape
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DETERMINANTS OF EXCHANGE RATE FLUCTUATIONS FOR VENEZUELA: APPLICATION OF AN EXTENDED MUNDELL-FLEMING MODEL HSING‚ Yu* Abstract Applying and extending the Mundell-Fleming model‚ this study attempts to examine the behavior of short-term real exchange rates for Venezuela. It finds that the real effective exchange rate is positively associated with real government deficit spending and negatively influenced by real M2‚ the world interest rate‚ county risk‚ and the expected inflation rate. Hence‚ the authoritie
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operating through changes in rediscount rate and refinance rate. The main purpose of LOLR for all the central banks is to ensure the stability and safety of the commercial banking system. In this paper‚ I will define central bank and its function. Next‚ I will evaluate why central banks should be reluctant to act as a lender of last resort. I. Introduction Central bank is a public institution that manages a state’s currency‚ money supply‚ and interest rates. Central banks have a wide range of
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supply of money. The RBA controls Monetary Policy through interest rates and Domestic Mkt. operations. The cash rate at this point in time is ________‚ which represents the market interest rate on overnight funds. The RBA keeps control on the cash rate through its financial market operations and it functions as the policy instrument. The RBA’s Domestic Market Operations (DMO) (also known as "open market operations") are used to keep the cash rate set as close as possible to that set of the board‚ by
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functions. Repo rate Repo rate is the rate at which RBI lends to commercial banks generally against government securities. Reduction in Repo rate helps the commercial banks to get money at a cheaper rate and increase in Repo rate discourages the commercial banks to get money as the rate increases and becomes expensive. As the rates are high the availability of credit and demand decreases resulting to decrease in inflation. Reverse Repo rate Reverse Repo rate is the rate at which RBI borrows
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